What is Corporate Debt Restructuring (CDR) ?

CDR is an arrangement where the lenders and the management
of a defaulting company strike a deal to revive the borrower.

A borrower going through CDR receives some breathing space
to repay loan on the condition that it sticks to certain commitments.

Even today banks have the power to convert outstanding debt
into equity, but not all lenders and CDR deals insist on such conditions.

Besides such conversion - be it based on the borrower's book
value for unlisted firms or as per the SEBI (Securities and Exchange Board of
India) formula in case of listed companies - would rarely give the joint forum
of lenders 51% equity interest in defaulting companies.

This will change. For instance, even if the unpaid loan
amount is as little asRs.500 crore,
breach of certain pre-agreed covenants would pave the way for lenders to gain
51% control of the equity.

Once the CDR covenants are breached, lenders would
decide in a month or so whether they would accelerate the process to take control.

If banks think there is reason to move in, they would then serve a notice to
the company where it would be mentioned that after a certain time, the lenders
would become the majority shareholder.